Oil and gas M&A deal rises to US$370bn

The total deal value in 2019 increased 40 per cent y-o-y to US$370bn in the oil and gas market, thanks to several upstream and downstream mega-deals, according to a new Deloitte report

Although the value of the deal increased, the overall deal count decreased by 40 per cent as companies continue to struggle against low commodity prices and challenging market conditions, according to Deloitte’s ‘2020 Oil and Gas M&A Outlook’

The annual report explores the factors that impacted 2019 M&A activity and provides insight on trends to watch for in 2020.

Duane Dickson, vice chairman and US oil, gas and chemicals leader, Deloitte Consulting LLP, said, “As we enter 2020, the new decade seems to be ushering in a new era of oil and gas portfolio design driven by changing shareholder and investor expectations. As portfolio optimization, capital discipline and sustainability issues move increasingly to the core of corporate decision making, the drivers and types of deals will likely evolve.”

According to the report, absent an increase in commodity prices, the dampened level of deal-making activity is expected to continue in 2020. However, as many companies change their portfolios to match external market conditions and their own shifts in strategic priorities, evolving trends and themes could shape the oil and gas transactions market in the year ahead and beyond.

The largest driver in 2020 divestitures will likely be massive 2018 and 2019 acquisitions. Upstream companies involved in recent deals are expected to continue to realign their portfolios and strategies while also looking for divestment opportunities that allow them to focus on expanded footprints and assets.

In looking at existing assets, some companies are considering carbon footprints when it comes to divestitures. As investor sentiment has changed, oil companies have increased their discussion of environmental, social and governance (ESG) issues.

“As the size of ESG investment funds grow, so could oil and gas companies’ interests in burnishing their environmental credentials. To that end, we will likely see not only increased renewables investment but also carbon-based divestures,” Deloitte stated.

In 2020, Deloitte sees more consolidation of upstream and OFS companies as capital markets refuse to thaw and topline US production growth continues to decline. Sellers and management teams, however, might need to be willing to forgo significant premiums to get the deals done in order to achieve the synergies and economies of scale that form the strategic basis for executing the deal – which may make the stock more palatable as currency.